Case: 14-15342 Date Filed: 04/29/2016 Page: 1 of 27media.ca11.uscourts.gov/opinions/unpub/files/201415342.pdf · D.C. Docket No. 1:13-cv-22782-MGC . VITREO RETINAL CONSULTANTS OF

[DO NOT PUBLISH]

IN THE UNITED STATES COURT OF APPEALS

FOR THE ELEVENTH CIRCUIT ________________________

Nos. 14-15342 & 15-12005

Non-Argument Calendar ________________________

D.C. Docket No. 1:13-cv-22782-MGC

VITREO RETINAL CONSULTANTS OF THE PALM BEACHES, P.A., a Florida corporation,

Plaintiff - Appellant,

versus

U.S. DEPARTMENT OF HEALTH & HUMAN SERVICES,

Defendant - Appellee.

________________________

Appeals from the United States District Court for the Southern District of Florida

________________________

(April 29, 2016)

Before HULL, MARCUS, and ROSENBAUM, Circuit Judges.

PER CURIAM:

Case: 14-15342 Date Filed: 04/29/2016 Page: 1 of 27

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Plaintiff-Appellant Vitreo Retinal Consultants of the Palm Beaches, P.A.

(“VRC”), brought suit in the Southern District of Florida against the United States

Department of Health and Human Services (“HHS”) and the Secretary of HHS

Sylvia Burwell (“Secretary”) seeking the recoupment of payments VRC returned

to Medicare after it was issued notice of an overpayment. Throughout the

Medicare administrative review process, HHS upheld the ruling denying

recoupment. The district court similarly affirmed HHS’s decision. After careful

review, we now affirm the ruling of the district court upholding the administrative

decision.

I.

A. Administration of Lucentis

During the years 2007 and 2008, VRC served patients covered by Medicare

Part B who suffered from age-related macular degeneration (“AMD”) and other

retinal diseases. Among other treatment methods for AMD, VRC administered the

intravitreal injection of Lucentis. Lucentis is FDA approved for the treatment of

AMD. It is manufactured and sold by Genentech, Inc., in 2.0-mg vials.

The FDA-approved labeling on the drug instructs that a single 0.5-mg dose

of Lucentis be injected into the patient’s eye once each month. The proper method

for extracting the drug and administering the injection described on the label

requires the healthcare professional to extract the full contents of the 2.0-mg vial


3

into a syringe. The contents of the syringe are then to be expelled until the plunger

tip is aligned with the line that marks 0.05 mL (0.5 mg). Then the dose is to be

injected into the patient’s eye. The label further instructs that “[e]ach vial should

only be used for the treatment of a single eye.”

First Coast Service Options, Inc., administers Medicare payment processing

in Florida. SafeGuard Services LLC audits Medicare claims. In February 2008,

First Coast issued its first Local Coverage Determination for Lucentis,

acknowledging that the drug was “medically reasonable and necessary” for the

treatment of AMD. The Local Coverage Determination incorporated the label’s

instruction that “[e]ach vial should only be used for treatment of a single eye.”

VRC did not follow the Lucentis label’s instructions limiting dosage to one

per vial. Instead, VRC treated up to three patients from a single vial. It did so by

extracting up to three doses of 0.5 mg each from one vial into three separate

syringes. This process is referred to by the parties as “multi-dosing.” VRC billed

Medicare for every 0.5-mg dose of Lucentis it administered.

The reimbursement rate for Medicare Part B drugs is capped at the lower of

the physician’s billed charge or 106% of the drug’s average sales price. 42 U.S.C.

§ 1395w-3a. The drug’s average sales price, in turn, is calculated quarterly based

on nationwide sales, divided by the total number of units of drug sold. Id. (c)(1),

(5)(B). Physicians receive reimbursement based on the number of dosage units


4

used to treat a patient. Id. (b)(1). Where a drug’s administration results in wasted

contents, Medicare reimburses the physician for the waste if it was a necessary part

of administration. Medicare Claims Processing Manual, Pub. No. 100-04, Ch. 17,

§ 40.

The calculated reimbursement rate of Lucentis during the period at issue was

approximately $405 per 0.1 mg administered or $2,025 for a standard 0.5-mg

dose.1 This price was reached by determining the cost of an entire single-use vial

of Lucentis. The average sales price for a vial was $2,025. This price was then

assigned as the cost of one dose of 0.5 mg. The 0.5-mg dose was then broken

down into individual units of 0.1 mg, with a reimbursement rate of $405 ($2,025 ÷

5). Hence, if administered according to the label, a provider would inject 0.5 mg

into a patient’s eye, dispose of 1.5 mg, and receive reimbursement in the amount of

approximately $2,025 for the single vial—or the total average cost of the 20-mg

vial. VRC billed Medicare at the allowed rate for every 0.5-mg dose it

administered,2 resulting in a bill for approximately $2,025 for every dose. Because

VRC was extracting up to three doses from a single vial, it was “reimbursed” for

approximately $6,075 per single Lucentis vial, three times the average cost of the

1 During 2007-2009 the average sales price of Lucentis fluctuated between approximately

$405 and $407. The exact amount is immaterial for the purpose of this opinion. 2 VRC’s billed charge was higher than the 106% statutory rate, so the lower rate based on

the average sales price was applied in accordance with the Medicare statute. 42 U.S.C. § 1395w-3a.


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vial and three times the amount it would have received had it administered the drug

according to the label.

B. Administrative Proceedings

In June 2009, SafeGuard issued to VRC a preliminary overpayment

determination of approximately $8.9 million, representing the amount charged for

two-thirds of the doses administered by VRC against the label’s instructions. In

July of the same year, First Coast published an updated Local Coverage

Determination under the title “Article Clarification” specifically aimed at

eliminating payment for multi-dosing from single-use Lucentis vials. This

publication stated that “when a single use vial is used and billed for three patients

at 0.5 mg per patient . . . [t]he physician is then overstating his/her expense.” In

addition, First Coast adopted SafeGuard’s overpayment determination and

concluded that VRC “should have known [it was] not entitled to” the overpayment

and was therefore liable to repay to Medicare $8,982,706.98. VRC’s request for

reconsideration was denied and VRC complied with the repayment demand. VRC

also pursued administrative review.

An administrative law judge (“ALJ”) upheld the overpayment determination.

The ALJ noted that VRC had not complied with the drug’s label. As a result, the

ALJ concluded, the injection of more than one dose from one vial of Lucentis was

not “safe and effective” and was not covered by Medicare Part B. The Medicare


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Appeals Council subsequently affirmed the ALJ’s decision.3 The Appeals Council

held that Lucentis injections are “medically reasonable and necessary [only] to the

extent the drug [is] administered consistent with its FDA-approved label.” In

addition, the Appeals Council held that VRC “knew, or could reasonably be

expected to know, that the Lucentis injections . . . would not be covered by

Medicare,” so it was liable for the overpayment under 42 U.S.C. § 1395pp(a).

C. District Court Proceedings

VRC filed suit in the Southern District of Florida. The district court granted

summary judgment for HHS. It gave deference to the agency’s decision because

“[p]laintiff has failed to demonstrate that the Secretary[’]s decision was arbitrary,

capricious, an abuse of discretion, or otherwise not in accordance with law.” VRC

now appeals.

II.

We review de novo grants of summary judgment, and we the same legal

standards that bound the district court. Whatley v. CNA Ins. Cos., 189 F.3d 1310,

3 The Appeals Council’s decision refined the ALJ’s decision in one detail. The ALJ

found that VRC’s administration of Lucentis was not medically reasonable and necessary. On the other hand, the ALJ calculated the proper payment for all three doses of Lucentis, allowing VRC to charge for all three doses from a single vial, but at a reduced billing rate that reflected a two-thirds decrease in the allowed rate. The Appeals Council held that this was contradictory: If VRC’s administration of Lucentis was not reasonable, it should not receive reimbursement for more than one dose per vial. The Appeals Council modified the decision accordingly and held that the administration of a single 0.5-mg dose of Lucentis from a single vial was reasonable and should be reimbursed at the full rate of $2,025, while the administration of second and third doses from the same vial was not reasonable because it did not comply with the drug’s label.


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1313 (11th Cir. 1999). Summary judgment is appropriate when the record reflects

show no genuine issue of material fact and demonstrates that the moving party is

entitled to judgment as a matter of law. Connelly v. Metro. Atlanta Rapid Transit

Auth., 764 F.3d 1358, 1363 (11th Cir. 2014).

In a dispute related to Medicare reimbursement, “[t]he findings of the

[Secretary] as to any fact, if supported by substantial evidence, shall be

conclusive.” 42 U.S.C. §§ 405(g), 1395ff(b)(1)(A). We therefore limit our review

to whether substantial evidence supports the Secretary’s findings and whether the

Secretary applied the correct legal standards. Wilson v. Barnhart, 284 F.3d 1219,

1221 (11th Cir.2002); see 42 U.S.C. § 1395ff(b)(1)(A) (incorporating into

Medicare Act the standard of review set forth in 42 U.S.C. § 405(g)).” Gulfcoast

Med. Supply, Inc. v. Sec’y, Dep’t of Health & Human Servs., 468 F.3d 1347, 1350

n.3 (11th Cir. 2006). Substantial evidence “is ‘such relevant evidence as a

reasonable mind might accept as adequate to support a conclusion.’” Barnes v.

Sullivan, 932 F.2d 1356, 1358 (11th Cir. 1991) (citations omitted). “We review de

novo the district court’s decision on whether substantial evidence supports the

ALJ’s decision.” Wilson, 284 F.3d at 1221.

As for legal conclusions, the Administrative Procedure Act limits our review

to determining whether the agency’s actions were “arbitrary, capricious, an abuse

of discretion, or otherwise not in accordance with law.” 5 U.S.C. § 706. “[T]his


8

standard is exceedingly deferential.” Fund for Animals, Inc. v. Rice, 85 F.3d 535,

541 (11th Cir. 1996). As we have previously explained, “the arbitrary and

capricious standard gives an appellate court the least latitude in finding grounds for

reversal; ‘[a]dministrative decisions should be set aside in this context . . . only for

substantial procedural or substantive reasons as mandated by statute, . . . not

simply because the court is unhappy with the result reached.’” Rice, 85 F.3d at

541-42 (citations omitted). We are not permitted to substitute our judgment for

that of the agency “concerning the wisdom or prudence of the proposed action.”

Id. We have further recognized that our deference to the Secretary’s judgment is

especially warranted in the context of Medicare “[b]ecause Medicare is a ‘complex

and highly technical regulatory program.’” Gulfcoast Med. Supply, 468 F.3d at

1353 (citation omitted).

III.

“Title XVIII of the Social Security Act, 79 Stat. 291, as amended, 42 U.S.C.

§ 1395, et seq., commonly known as the Medicare Act, establishes a federally

subsidized health insurance program to be administered by the Secretary.” Heckler

v. Ringer, 466 U.S. 602, 605, 104 S. Ct. 2013, 2016 (1984). Medicare Part B

creates voluntary supplemental medical insurance covering, among other things,

doctors’ services and outpatient care. 42 U.S.C. § 1395k(a)(2). Under the

program, Medicare beneficiaries receive medical treatment, and providers submit


9

claims for government reimbursement. 42 U.S.C. § 1395n. To prevent abuse and

to control costs, Congress has authorized Medicare reimbursement for “medical

and other health services” if they are “reasonable and necessary” only. See 42

U.S.C. §§ 1395k(a)(1), 1395y(a)(1)(A). “Medical and other health services”

include “services and supplies [] furnished as an incident to a physician’s

professional service.” 42 U.S.C. § 1395x(s)(2)(A). Under the Medicare Act, the

Secretary has the authority “to determine what claims are covered by the Act ‘in

accordance with the regulations prescribed by him.’” Ringer, 466 U.S. at 605, 104

S. Ct. at 2016 (citing 42 U.S.C. § 1395ff(a)).

The Centers for Medicare and Medicaid Services (“CMS”) within HHS are

responsible for the administration of Medicare Part B, including the determination

of coverage for physician-administered drugs. HHS, CMS Reorganization Order,

66 Fed. Reg. 35437 (July 5, 2001). CMS published the Medicare Benefit Policy

Manual to provide guidance on Medicare Part B coverage. This manual instructs

that “[i]n order to meet all the general requirements for coverage under the

‘incident to’ provision . . . the cost of the drug or biological must represent an

expense to the physician.” Pub. No. 100-02, Ch. 15, § 50.3. The Policy Manual

further requires that drugs be “safe and effective.” Id. § 50.4.1. Drugs are “safe

and effective” when “used for the indications specified on the labeling.” Id.


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Regional Medicare contractors, in turn, are authorized to issue Local

Coverage Determinations governing when items and services are “reasonable and

necessary” and therefore payable by Medicare. 42 U.S.C. § 1395ff(f)(2)(B). CMS

published the Medicare Program Integrity Manual to guide regional contractors in

their local coverage determinations. Pub. No. 100-08, Ch. 13. This manual

instructs that coverage determinations should be based on whether an item is

“[a]ppropriate . . . in terms of whether it is [f]urnished in accordance with accepted

standards of medical practice for the diagnosis or treatment of the patient’s

condition.” Id. § 13.5.1.

In the instant case, First Coast, the regional Medicare contractor for Florida,

issued a Local Coverage Determination, acknowledging Medicare coverage for

Lucentis. As described above, the Local Coverage Determination incorporated the

label’s instruction: “Each vial should only be used for treatment of a single eye. If

the contralateral eye requires treatment, a new vial should be used.” Based on this

instruction, the Secretary, through First Coast and SafeGuard, determined that

Medicare would not reimburse for multiple doses of Lucentis administered from

the same vial.

VRC argues that the Secretary’s determination was unlawful. First, VRC

asserts that the Secretary exceeded her authority in calculating the reimbursement

allowance for Lucentis at anything less than full payment for every 0.5-mg dose,


11

regardless of how many doses were administered per vial. Second, VRC contends

that the Secretary’s determination that administering more than one dose per vial

was medically unreasonable and unnecessary was arbitrary and capricious and not

supported by substantial evidence. Finally, VRC maintains that even if the

Secretary’s decision was proper, it should be applied prospectively only, and VRC

should not be held liable to repay Medicare the overpayment amount of $8.9

million. We do not find merit in VRC’s arguments.

A. VRC’s Charge to Medicare did not Reflect its Expense and was Not Medically Reasonable.

The Secretary denied payment to VRC on two grounds. Initially, the

Secretary denied payment because VRC “overstated [its] expense” by billing

Medicare for each 0.5-mg dose of Lucentis it administered, when it did not

purchase and incur the expense of a full 2.0-mg vial for each dose. Later in the

review process, the Secretary based her denial of payment on the finding that

multiple doses were not medically reasonable and necessary.

Before addressing the merits, we consider a procedural argument urged by

VRC. There is some indication that the two reasons offered by HHS were not

offered contemporaneously. In the initial overpayment letter, HHS based its

decision on “overstated expense.”4 Only later in the review process—on review

4 In the initial overpayment letter from First Coast, HHS stated that “medical necessity is

not an issue in this case” and that the only issue was the overstated expense. VRC attempts to


12

before the Medicare Appeals Council—did HHS assert that multi-dosing was

medically unreasonable. VRC insinuates that this history automatically indicates

arbitrariness. We disagree.

First, it is not clear that HHS ever surrendered its first reason. In the district

court, the Secretary expressly relied on the overstated-expense theory. And on

appeal, in its brief, HHS contests VRC’s assertion regarding the fiscal effects of

the Secretary’s position, an argument closely related to the overstated-expense

theory.5 But even if HHS had changed its reason for denying payment, that, in and

of itself, would not necessarily make the Secretary’s decision arbitrary.

The Supreme Court has repeatedly held that an agency can change its

position on an issue, so long as it gives a proper reason for doing so. See, e.g.,

F.C.C. v. Fox Television Stations, Inc., 556 U.S. 502, 129 S. Ct. 1800 (2009)

(holding agency need not provide a more substantial reason for a change in policy

than the arbitrary standard); Nat’l Cable & Telecommunications Ass’n v. Brand X

argue that this statement waived the Secretary’s subsequent position that multi-dosing was medically unreasonable. We disagree. Even without considering whether the Secretary can permissibly change her reasoning justifying a particular application of a rule in a given case, all that can be surmised from this single line in the letter is that the overpayment determination was not based on concerns that VRC was administering drugs to patients who did not need them. In other words, HHS was conceding that Lucentis is medically reasonable for the treatment of AMD in general. There is nothing in the letter indicating that HHS was condoning the practice of multi-dosing from single vials of Lucentis.

5 Below, we disagree with the Secretary’s argument on this point and recognize the truth of VRC’s position that the resolution of this case is fiscally neutral to Medicare. See infra Part I.A. However, the point here is that the Secretary did raise the overstated expense issue on appeal and it is appropriate for us to address in this opinion.


13

Internet Servs., 545 U.S. 967, 981, 125 S. Ct. 2688, 2699 (2005) (“Agency

inconsistency is not a basis for declining to analyze the agency’s interpretation

under the Chevron framework”); see also Am. Petroleum Inst. v. E.P.A., 661 F.2d

340, 355 (5th Cir. 1981) (“Nothing in the Administrative Procedure Act prohibits

an agency from changing its mind.”). Because it is not clear that the Secretary

intended to forgo her initial argument, we address both reasons that the Secretary

proffers.

1. Overstated Expense

VRC argues that the Secretary’s first rationale is flawed because Medicare

reimbursement is not related to the physician’s expense. For support, VRC cites

Hays v. Sebelius, 589 F.3d 1279 (D.C. Cir. 2009). That case concerned whether

the Secretary could deny payment for DuoNeb, a drug used to treat Chronic

Obstructive Pulmonary Disease. Id. at 1280. DuoNeb provides a combination of

two separate drugs in one dose and is more expensive than purchasing the

component drugs separately. Id. The Secretary argued that Medicare’s “least

costly alternative policy” required that reimbursement be limited to the cost of the

two separate drugs rather than the higher cost of DuoNeb. Id. The District of

Columbia Circuit held that the statute is unambiguous in its instruction to the

Secretary: “either an item or service is reasonable and necessary, in which case it

may be covered at the statutory rate, or it is unreasonable or unnecessary, in which


14

case it may not be covered at all.” Id. at 1282. As the court explained, “Nothing in

the statute authorizes the least costly alternative policy.” Id. at 1283.

We think Hays inapposite. Hays construed the Medicare statute to require

Medicare to pay for any drug it deems reasonable and necessary, without regard to

alternative methods that would save Medicare money. Here, the Secretary did not

demand that VRC administer a cheaper alternative than Lucentis. Instead, the

Secretary demanded only that VRC’s bill to Medicare reflect the expense incurred

by VRC in purchasing the drug. Medicare’s policy is that “[t]he charge . . . for the

drug or biological must be included in the physician’s bill, and the cost of the drug

or biological must represent an expense to the physician.” Medicare Benefit

Policy Manual, Pub. No. 100-02, Ch. 15, § 50.3 (emphasis added). Nothing in the

statute forbids the Secretary from relating Medicare reimbursement to the

physician’s expense. On the contrary, the very concept of “reimbursement”

contemplates payment for money that was actually spent. See Reimbursement, The

Am. Heritage Dictionary (4th ed. 2000) (“1. To repay (money spent); refund. 2.

To pay back or compensate (another party) for money spent or losses incurred . . .

.”); see also Bowen v. Georgetown Univ. Hosp., 488 U.S. 204, 205, 109 S. Ct. 468,

470 (1988) (“health care providers are reimbursed by the Government for expenses

incurred in providing medical services to Medicare beneficiaries.”) (emphasis

added).


15

VRC also points to a recent CMS publication that describes Medicare’s

policy for reimbursing medical providers. 81 Fed. Reg. 13229 (March 11, 2016).

This publication explains that “Medicare pays for most drugs . . . at ASP+ 6

[Average Sales Price + six percent]. . . . The ASP payment amount does not vary

based on the price an individual provider or supplier pays to acquire the drug.” Id.

at 13231; see also id. at 13253 (“Medicare pays this price regardless of the price a

provider pays to acquire the drug.”). VRC argues that this publication contradicts

the Secretary’s position.

Again, we disagree. Under CMS’s policy, once it has determined the

Average Sales Price and calculated the 106% reimbursement rate for a given drug,

CMS does not inquire into individual medical providers’ costs when calculating

reimbursement. Instead, CMS reimburses at the 106% rate, regardless of the

possibility that a given provider may have obtained the drug at a reduced rate.

That is not what happened here. VRC’s profits from treating AMD with Lucentis

did not stem from the advantage of purchasing the drug at a reduced rate. VRC

bought Lucentis at the market rate. Its extraordinary profits arose from using a

single-dose-approved vial for three patients, in violation of the FDA-approved

instructions.

VRC next suggests that Medicare’s policy to pay for overfill runs counter to

the position that HHS has taken with respect to VRC. Under the overfill policy,


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CMS “reimburse[s] suppliers for the total number of units administered . . . . CMS

does not make any payment determinations based on the absence or presence of

‘overfill’ in a vial.” “Overfill” is “[a]ny excess free product . . . provided without

charge” when a physician purchases a vial of a drug, in excess of amounts “defined

by the product packaging.” 75 Fed. Reg. 73170, 73466 (Nov. 29, 2010). VRC

argues that if Medicare reimburses for overfill, even though overfill is obtained

without cost, certainly Medicare should reimburse for the full contents of a vial of

Lucentis in order to reimburse the full expense to the provider in purchasing the

vial.

We are not persuaded. Medicare’s policy to reimburse for overfill means

only that where a manufacturer does not charge for excess drug, Medicare will not

recalculate its unit price for the excess drug. But this policy is inapplicable in a

situation where Medicare has calculated the unit price for a drug based on the

presumption that some of a vial’s content will necessarily not be used per the

drug’s instructions. In such a case, if a physician does not comply with the

instructions and multi-doses, the presumption for the calculation is lost and a

recalculation is in order.

Here, Medicare determined the unit price for Lucentis, taking into account

the full contents of a Lucentis vial and the label instructions for administration.

Because only 0.5 mg of a 2.0-mg vial should actually be administered under the


17

FDA-approved labeling, the price of the full vial was assigned as the price of a

single 0.5-mg dose. Therefore, every time a physician buys a single 2.0-mg vial

and administers a single 0.5-mg dose from the vial (disposing of 1.5 mg of the

drug), the physician is compensated for the full cost of purchasing the 2.0-mg vial,

despite the fact that the doctor administers only 0.5 mg. Indeed, upon discovery of

VRC’s actions, First Coast issued an article clarification specifically recalculating

the unit price of Lucentis if a physician used a single vial to administer more than

one dose.

We also reject VRC’s argument that the Secretary’s decision was arbitrary

because the total amount of reimbursement would not have changed whether

Medicare reimbursed at the full amount of $2,025 for three doses of a single vial or

required that every dose be administered from separate vials. This argument fails

to account for Medicare’s lawful policy that reimbursement to providers should

reflect more-or-less actual expense to the physician. See Bowen, 488 U.S. at 205,

109 S. Ct. at 470. And since that policy is not arbitrary or capricious, Medicare’s

decision to reimburse VRC for only its actual expenditure on Lucentis cannot be

arbitrary or capricious, either.

2. Medical Reasonableness and Necessity

As an alternative basis for denying reimbursement, the Secretary reasoned

that multiple doses of Lucentis from a single vial were medically unreasonable,


18

based on the FDA-approved labeling instructions allowing for only a single dose

from a single vial. VRC contends that this decision was arbitrary.

a. Medical Distinction between Doses

First, VRC argues that it is arbitrary for the Secretary to treat the first dose

of Lucentis from a given vial as medically reasonable and the other two doses from

the same vial as medically unreasonable. We disagree. The inquiry into whether a

drug is medically reasonable and necessary in the Medicare reimbursement context

is not limited to an assessment of whether the drug is suited to treat the disease or

condition for which it was administered. The inquiry also accounts for whether a

drug was administered properly. See Medicare Policy Integrity Manual, Pub. No.

100-08, Ch. 13, § 13.5.1. Because administering more than one dose of Lucentis

from one vial violated the drug’s FDA-approved labeling, the Secretary reasonably

could have concluded that multi-dosing was medically inappropriate.

b. Local Coverage Determination

Next, VRC argues that its administration of multi-doses of Lucentis

complied with the then-existing conditions for Medicare coverage. First Coast’s

2008 Local Coverage Determination stated that “Medicare will consider [Lucentis]

medically reasonable and necessary for patients” with AMD. VRC asserts that

nothing in this initial Coverage Determination described the proper process for

preparation of injections or prohibited multi-dosing. In support, VRC points to the


19

fact that in 2009 First Coast published an “Article Clarification” specifically

reducing payment for multi-dosing, the implication being that until then multi-

dosing was acceptable and would be reimbursed at the full rate.

We disagree. The 2008 Coverage Determination expressly incorporated the

drug’s labeling: “Each vial should only be used for the treatment of a single eye.

If the contralateral eye requires treatment, a new vial should be used.” We cannot

say that it was arbitrary or capricious for HHS to read this instruction as a

prohibition against administering more than one dose from a single vial, regardless

of whether VRC proposes another reasonable interpretation of the labeling. Nor

does the Secretary’s issuance of the 2009 “Article Clarification” undermine the

reasonableness of her original interpretation of the labeling. Rather, the Article

Clarification is entirely consistent with the Secretary’s original interpretation. We

review the Secretary’s decision for arbitrariness, and reading the instruction as

prohibiting multi-dosing is not arbitrary.

c. Practice of Multi-Dosing

VRC also contends that CMS encourages the practice of multi-dosing from

single-use vials and that the practice is widely accepted in the medical community.

In support of this position, VRC invokes the Medicare Claims Processing Manual,

which states that “CMS encourages physicians, hospitals and other providers to

schedule patients in such a way that they can use drugs or biologicals most


20

efficiently, in a clinically appropriate manner.” Pub. No. 100-04, Ch. 17, § 40

[A162.]. In addition, VRC relies on a response to a “Frequently Asked Question”

(“FAQ”) that CMS published on its website in March 2011. The question asked

whether Medicare would provide coverage “for a drug from a single dose vial if it

is administered to more than one beneficiary[.]” CMS responded that it

“encourages physicians . . . to care for and administer to patients in such a way that

they can use drugs or biologicals most efficiently, in a clinically appropriate

manner. . . . [O]ur policies neither encourage or [sic] prohibit the administration of

more than one dose from a single dose vial to one or more beneficiaries.”6 Finally,

VRC points to the Secretary’s policy to reimburse physicians for multiple doses

from single vials of Botox and Avastin. VRC contends that both of these drugs

come in “single-use” vials, yet Medicare reimburses for multiple doses.

These arguments lack merit. Both publications on which VRC relies include

the important disclaimer that multiple doses are acceptable only if administered “in

a clinically appropriate manner.” And the CMS response to the FAQ explains that

“clinically appropriate methods” are determined by “numerous factors, including

but not limited to: approved labeling.”

6 VRC also cites FDA publications permitting repackaging and multi-dosing from single-use vials, arguing that even if it was required to follow the drug’s label’s instructions, the FDA itself disregards them. The relevant publications address repackaging in specialized, licensed facilities with a high level of air quality to avoid contamination. See Draft Guidance Mixing, Diluting, Or Repackaging Biological Products Outside The Scope Of An Approved Biologics License Application Guidance For Industry, 2015 WL 1735391. They are inapplicable to VRC, which is not a licensed repackaging facility.


21

VRC’s analogy to Botox and Avastin is misplaced as well. Botox is a

vacuum-dried powder that is available in 100-unit vials only. Before

administration, the physician must reconstitute all of the powder from the single

vial with saline solution. Once reconstituted, the drug must be stored in a

refrigerator and used within 24 hours. To prevent physicians from saving the drug

for use beyond 24 hours, Botox is labeled “Single Patient Use.” But the Botox

packaging insert instructs, “A new, sterile, needle and syringe should be used to

enter the vial on each occasion for removal of Botox.” So the drug’s instructions

expressly contemplate multiple doses from a single vial. That, of course, is not the

case with Lucentis.

As for Avastin, it is sold in 100- or 400-mg vials, must be diluted before

administration, and should be stored for no more than eight hours. Avastin is

FDA-approved only for the treatment of certain forms of cancer; treatment of

AMD is an off-label use. Therefore, although the Avastin instructions state that

the physician should “[w]ithdraw [the] necessary amount . . . [and] [d]iscard any

unused portion,” these instructions apply only where the drug is used for the

treatment of cancer, in which case a single dose varies between 100 mg and 400

mg. But Medicare has a separate procedure for determining coverage for off-label

use, taking into account accepted standards of medical practice for that drug’s off-

label use, which often vary from accepted standards for on-label use. See


22

Medicare Benefit Policy Manual, Pub. No. 100-02, Ch. 15, § 50.2. When Avastin

is used for the treatment of AMD, a single dose is as small as 1.25 mg. The

accepted medical practice is to use multiple doses from a single vial of Avastin

when it is being used to treat AMD. In this context, as with Botox, Avastin’s

admonition of “single use” is intended to prevent physicians from using product

that has been stored past the acceptable eight-hour timeframe.

Unlike Avastin, Lucentis’s on-label, FDA-approved use is for treating

AMD. Its label expressly states that each vial should be used for only the

treatment of a single eye and the excess drug should be drawn into the syringe and

expelled. VRC administered Lucentis for its on-label use and failed to follow the

instructions regarding that use, without any support from an established medical

practice that differs from the label’s instructions.7

In light of these distinctions between Lucentis and the other drugs VRC

identifies, we cannot conclude that the Secretary’s policy to treat Lucentis

differently is arbitrary or capricious.

B. The Secretary’s Decision was Supported by Substantial Evidence.

VRC argues that the Secretary’s decision violated the Administrative

Procedure Act because it was not based on substantial evidence. Above we have

7 VRC attempts to analogize Lucentis to Kenalog as well. This analogy also fails

because, unlike Lucentis, Kenalog does not include an instruction to withdraw the entire contents and expel the excess.


23

already discussed much of the basis for VRC’s argument. In addition, VRC raises

some additional points.

First, VRC argues that the Secretary placed undue reliance on Lucentis’s

labeling because the Local Coverage Determination is the definitive determination

by a Medicare contractor “respecting whether or not a particular item or service is

covered.” 42 U.S.C. § 1395ff(f)(2)(B). Since First Coast’s initial Local Coverage

Determination did not incorporate the instruction to discard unused Lucentis as a

condition for payment, VRC contends it was not bound to follow the FDA-

approved instructions to receive reimbursement.

But even assuming that the Local Coverage Determination is the definitive

one, the Local Coverage Determination at issue included the instruction that each

vial be used for a single eye only. This instruction necessarily implies that excess

drug above the 0.5-mg dose should be discarded. In addition, the Local Coverage

Determination need not include all instructions regarding the administration of the

drug. The purpose of the Local Coverage Determination is to instruct physicians

under what terms they will receive reimbursement. To that end, First Coast

described the basic method of administering the drug, describing the amount of a

single dose and requiring a new vial for each eye. The additional instructions on

the label were not necessary for the description of the terms for reimbursement and


24

do not absolve VRC of its disregard of the instruction to discard remaining

amounts.

In addition to Lucentis’s label, the Physician’s Desk Reference includes the

instruction to discard unused product. Courts have recognized the Physician’s

Desk Reference as evidence of the medical standard for a given drug. See Haught

v. Maceluch, 681 F.2d 291, 303 (5th Cir. 1982) (relying on Physician’s Desk

Reference to establish standard of care in a medical malpractice suit). While the

Physician’s Desk Reference is not conclusive evidence of the standard or accepted

practice, the drug’s label instructed that the excess drug should be discarded, the

Physician’s Desk Reference repeated the instruction, and VRC presented no

evidence of a contrary accepted medical practice.8

C. VRC is Liable for the Overpayment.

Having determined that the Secretary’s legal interpretation withstands

judicial scrutiny and was supported by substantial evidence, we next consider

VRC’s argument that it is not liable for the overpayment because it acted in good

faith when it accepted the payment. In support, VRC cites two sections of the

8 VRC raises additional points regarding a letter sent from Lucentis’s manufacturer and

the Centers for Disease Control and Prevention standards for repackaging that were relied on by the district court as a basis for affirming the Secretary’s decision. We need not reach these points because sufficient grounds exist to affirm the Secretary’s decision based on the drug’s label and the Physician’s Desk Reference.


25

Medicare Act: 42 U.S.C. § 1395pp and 1395gg. Neither of these sections relieves

VRC of liability.

a. 42 U.S.C. § 1395pp

Under 42 U.S.C. § 1395pp(a), Medicare must reimburse a provider if the

provider “did not know, and could not reasonably have been expected to know,

that payment would not be made for such items or services.” VRC argues that it

could not have reasonably been expected to know at the time that it administered

the doses that the Secretary would not reimburse multi-doses of Lucentis.

In support of its argument, VRC once again relies on CMS’s policy to

encourage multi-dosing. But CMS does not maintain a general policy to encourage

physicians to contravene FDA-approved instructions without evidence to support

such a practice. And for the reasons we have previously discussed, VRC could

have and should have reasonably known when it administered the doses that it

would not be “reimbursed” three times for a single vial.

For the same reasons, we reject VRC’s argument that the Secretary

retroactively created policy through the HHS Medicare Appeals Council. Through

the initial 2008 Local Coverage Determination issued by First Coast, Medical

providers received sufficient notice that multi-dosing would not be covered at the

rate of $405 per unit. In short, on this record, VRC could and should have


26

reasonably known when it administered the multiple doses that it would be

reimbursed for only the number of vials it actually paid for.

b. 42 U.S.C. § 1395gg

Section 1395gg of the Medicare Act provides that the Secretary may waive

recoupment where the provider was “without fault” when it received overpayment.

42 U.S.C. § 1395gg. The CMS Financial Management Manual instructs that a

party is “without fault” when it “exercised reasonable care in billing for, and

accepting the payment.” Pub. No. 100-06, Ch. 3, § 90. “Reasonable care,” in turn,

requires that the provider “made full disclosure of all material facts” and that, “[o]n

the basis of information available to it, . . . [the provider] had reasonable basis for

assuming that the payment was correct, or, if it had reason to question payment; it

promptly brought the question to [Medicare’s] attention.” Id. VRC argues that

HHS should waive its right to recoupment because VRC was without fault when it

accepted the payment, and it dealt transparently with Medicare during the audit and

review process.

We do not agree. VRC did not have a reasonable basis for assuming the

payment was correct because its practice of multi-dosing was contrary to the

drug’s instructions and was not based on established medical practice. At best,

VRC “had reason to question payment,” in which case it should have brought the

question to the attention of First Coast to resolve the issue. VRC dealt


27

transparently with First Coast and SafeGuard after receiving notice of

overpayment. Transparency at this stage did not meet the standard of airing the

question to the proper authorities before burdening them with an extensive review

of VRC’s records. We therefore agree with the Medicare Appeals Council that

VRC was not “without fault” when it accepted the overpayment, and the Secretary

was under no obligation to waive the right to recoupment.

IV.

For the foregoing reasons, we affirm the judgment of the District Court.

AFFIRMED.


Documents

Case: 14-15342 Date Filed: 04/29/2016 Page: 1 of 27media.ca11.uscourts.gov/opinions/unpub/files/201415342.pdf · D.C. Docket No. 1:13-cv-22782-MGC . VITREO RETINAL CONSULTANTS OF